Financial Crisis Will Impact Healthcare Heavily

WASHINGTON, Oct. 10 -- The worldwide financial crisis and credit crunch will not spare the healthcare and medical communities, and they should brace for some major upheavals, warn economists, executives, and physicians.

Among those potential changes is likely to be a shake-up in the physician workforce as older physicians put off retirement while young would-be doctors meet resistance in securing medical school loans, according to a series of interviews by MedPage Today on the predicted fallout from the sharp economic downturn.

At the same time, medical group practices will have trouble making payroll or updating technology. And hospitals will be forced to change their "bigger is better" mindset and delay massive construction projects.

Workforce issues

One of the most immediate changes in medicine that the financial crisis may herald is that older physicians are likely to delay retirement as their nest eggs turn sour, said William Jessee, M.D., president and CEO of the Medical Group Management Association.

In fact, Dr. Jessee, who once practiced pediatrics, said he is thinking of delaying his own retirement in the face of a blow over the past few weeks to the funds he was banking on.

"I look at my 401k and think 'Okay, I just turned 62, and 70 is starting to look like a better retirement field,'" Dr. Jessee said.

An en masse delay in retirement may offset a predicted physician shortage, which might just be a small "silver lining" in the economic downturn, Dr. Jessee said.

But when these physicians realize some of the money they had planned for retirement is no longer there, they might turn away patients who will bring in little or no reimbursement money, predicted Princeton economist Uwe Reinhardt, Ph.D.

"Physician like that are likely to be far more money-oriented in practice decisions, which could affect the amount of charity care they give," Dr. Reinhardt added.

But a longer-term affect of the financial crisis might come from the other end of the physician age spectrum, with students who find they cannot get medical school loans in a dried-up credit market.

"Without question, the loan issue for students is definitely going to happen," Dr. Jessee said.

Dr. Jessee said that students already are so loaded with debt, many will opt for lucrative careers as specialists rather than turning to primary care. This will exacerbate an already thin primary care physician pipeline. If students are either unable to get loans, or are only able to negotiate high interest rates, the pipeline will further thin.

A loan crunch could also freeze out poorer students, negating efforts to diversify the physician workforce.

Rebuilding the primary care physician pipeline will involve restructuring how those doctors are paid, said Don McCanne, M.D., a volunteer senior policy fellow at Physicians for a National Health Plan, a group that advocates a single-payer system.

Changes at Group Practices and Hospitals

Dr. Jessee said he has yet to hear from his members -- physician group practices in a range of sizes -- that the credit lines on which they previously relied to run their business have dried up. But he predicts those reports will start flowing in, with practices that relied on loans for payroll and office necessities find credit resistance.

Add to the mix Medicare reimbursement rates that are the same as they were in 2001, and many medical practices are living on the edge, Dr. Jessee said.

With thin credit lines, those medical practices might be forced to lay-off employees or to shut down altogether.

And technological investments such as electronic medical records and electronic prescribing will certainly be shelved because of lack of start-up funds, Dr. Jessee said.

The healthcare plans of both presidential candidates call for a move to electronic records, but don't specify the sources of the money to transfer over from paper.

While small medical group practices will have many of the same problems small businesses have -- which mostly deal with credit issues -- large group practices can expect their problems to mirror those of hospitals.

In Massachusetts, a state whose hospitals have seen a building boom from 2004 to 2007 after a decade of narrow profit margins and little growth, the volatile loan environment is taking a toll on new construction, said Joe Kirkpatrick, vice president of healthcare finance for the Massachusetts Hospital Association.

The market plummet was only part of the problem. In some cases, conditions leading up to the crash had caused new construction to be put on hold mid-project.

Part of what makes the hospital loan environment particularly shaky is that many institutions refinance a portion of their loans weekly, called "variable rate debt," so they are not locked in to a particular date's rate. But now, those hospitals looking to reset their rates will not find favorable rates, possibly for quite some time.

Kirkpatrick said he is hearing reports from hospitals in his state that planned construction projects with loans at low financing rates, but now are confronted with rates that are eight times higher than what they planned.

"It's difficult for many of them to do it, and there have been some delays," said Kirkpatrick. "There has been some dislocation as people have to adjust their budgets."

As hospitals prepared their budgets for fiscal 2009, which began Oct. 1, many have complained of budget issues, and large and small hospitals alike have had to reduce staff, Kirkpatrick said.

Physicians are unlikely to be the ones to see the layoffs, though, Kirkpatrick said.

Dr. Reinhardt has little sympathy for the "bigger is better" mentality of modern-day hospitals that got them into the borrow-build-borrow-build mindset in the first place.

"It used to be said the way to classify American hospitals was by the number of construction cranes," Dr. Reinhardt said. "I think that's coming to an end."

He said the financial meltdown is sure to bring an end to the unabated investment in capital improvement projects, and may move the system toward a quality-over-quantity approach. Aside from capital improvements, Dr. Reinhardt thinks payers will now turn a more critical eye to reimbursing hospitals for the newest medical gadget.

"This will make, in some way, health reform easier, where you can say, we can no longer run the American hospital system in the same insane way," Dr. Reinhardt said. "The hospital is a free workshop for the doctors. In the same hospitals, the same doctors doing the same procedures will have vastly different costs."

Dr. McCanne agreed.

"Our high-tech spending has not brought us the value that it should have," he said. "Whatever we do, that is going to have to be addressed, where we reduce the waste from inappropriate high tech services."

Chance of healthcare reform?

As for whether the federal government's $750 billion Wall Street rescue strengthens or diminishes the chances of a new administration making healthcare reform a top priority, it's hard to know what will happen, but some say reform is now more important than ever.

"Obviously the concern is whether Congress and the new administration will tackle the challenge of the uninsured," said internist Cecil Wilson, M.D., of Winter Park, Fla., and a member of the AMA's board of trustees. "Doing nothing is actually going to cost more than doing something."

According to an adviser for Sen. Barrack Obama, the Democratic presidential nominee, the meltdown of the financial community will not push health legislation lower on the priority list if Sen. Obama is elected.

"It's a tremendous challenge, but the problems facing our healthcare system cannot be back-burnered," said Dora Hughes, M.D., a healthcare advisor to Sen Obama.

Sen. John McCain, the GOP candidate, said his healthcare reform plan would not be sidetracked because of other issues, such as the economy and the environment.

In late September at a Medicare conference, Newt Gingrich, a former speaker of the House, told a crowd of insurance industry professionals that the government bailout of Wall Street investment banking firms gives a clear message that Congress will never put health investments as a top priority, even funding for NIH.

"While they can find $700 billion to bail out Wall Street, they can't find the money we need for the NIH. Because what is Alzheimer's and cancer compared with Goldman Sachs?" Gingrich said.

In an October teleconference call entitled "Is Healthcare the Next Big Financial Bailout?" sponsored by the Partnership to Fight Chronic Disease, health economist Ken Thorpe, Ph.D., director of the group, and Tommy Thompson, a former secretary of HHS, argued that the bailout only makes the need to reform healthcare more acute.

"Failure to act on this issue of making healthcare more affordable is a recipe for long-term disaster," said Dr. Thorpe. "I think the economic downfall has made the issue of paying attention to healthcare in 2009 an even more important priority."

Dr. McCanne agreed.

"It just shows that it's even more imperative that we do reform healthcare," he said. "We need to reform it in a way that provides greater value."

In addition to the more immediate predicted effects of the financial crisis on healthcare, experts said job loss could lead to higher uninsured rates, and people may not seek out preventive care during such times.

"You go into a major recession and everything gets squeezed," said Dr. Reinhardt.

Reviewed by Zalman S. Agus, MD Emeritus Professor University of Pennsylvania School of Medicine

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